A 34.9% gain for stocks priced in gold is pretty good for a year’s work. But it’s a far cry from the 69.1% that stocks have gained when they are priced in dollars. Do you see what has happened here? Stocks have made you lots of dollars. But the dollar itself has fallen in value compared to the real and eternal value represented by gold.

Here’s the most troubling part. The entire 34.9% gain made by stocks — priced in gold, that is — was achieved in just the first five weeks of rallying from the March 2009 bottom. That means for most of the last year, since mid-April, while it has appeared that stocks have been furiously rallying, in reality they’ve just been sitting there. All risk, no reward.

Here’s the insight I get from these facts. In just the first five weeks after the bottom, stocks completely absorbed the good news that the economy was not going to fall into depression, as was widely feared at the time, and that the recession would soon be over. The 34.9% rally, priced in gold, is pretty close to the 28% recovery in expected corporate earnings we’ve experienced since the bottom.

So why, then, did stocks — priced in dollars, not gold — continue so much higher? Simple: We experienced inflation-induced growth. Throw enough stimulus money, an “extended period” of zero interest rates from the Fed, and a big dose of government debt at the economy, and you will get some growth – and, eventually, lots of inflation.

More than ever, innovation is disruptive and messy. It can’t be controlled or predicted. The only way to ensure it can flourish is to create the best possible environment — and then get out of the way. It’s a question of learning to live with a mess.

First, start-ups and smaller businesses must be able to compete on equal terms with their larger rivals. They don’t need favors, just a level playing field. Congress should ensure that every bill it passes promotes competition over protecting the interests of incumbents.

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To sum up, the Fed creates a monetary base and the banks can create $10 for every $1 of monetary base. Wall Street firms created $20 for every Fed $1. In other words, the Fed only seeds the market. Beyond crude instruments like interest-rate policy, it has little control over how much actual money supply exists. In good times banks lend too much. And in bad times, such as today, they don’t create enough money because they lend too little.

Perhaps the lesson Mr. Bernanke drew from 2008-09 is not that we need more regulation but that financial firms should not be allowed to generate money out of thin air to write soon-to-be-bad loans. To seal his legacy, it is fractional reserve banking that he can rein in. Limit leverage and you take away the hot air from these bubbles.”